Lynch plan fails with targeted-aid formula

Published: March 18, 2005

To this point, most critiques of the Lynch education funding plan suggest that there are only two things wrong with it — that it fails to comply with the Claremont case and that it takes state aid away from school districts when they improve student performance.
While both of these criticisms are valid, and are independently sufficient reasons to vote against the plan, other aspects of the plan are just as problematic. They involve the formula for targeting state aid.
The formula divvies up a pool of approximately $450 million by assigning each municipality a “measure of risk,” which is simply a catchy phrase for the percentage of the plan’s $8,291 per pupil cost of an adequate education that is to be funded by the state. The primary components of the formula are property tax base (40 percent), student performance (30 percent) and income (20 percent). Although it is widely known that the formula acts as a disincentive to improving student performance, the other components have received far less scrutiny.
Let’s start with the property-tax base component. The more a municipality’s per-pupil valuation exceeds the state average, the less state aid it receives, and vice-versa. While on the surface this appears to target state aid to municipalities that most need it, one of its effects is to penalize municipalities that have engaged in prudent land-use planning.
Assume that there are two towns, identical in all respects, except one town has passed planning and zoning ordinances to encourage business to locate there, while the other town has done just the opposite. As a result, the first town has a per-pupil property-tax base that is 25 percent higher than the state average, while the second town’s is 25 percent lower than the average.
The Lynch plan assigns the first town a smaller “measure of risk,” which results in it receiving less state aid than the second town. But the very reason that the town expanded its property tax base by encouraging business to locate there was so its residents could pay lower property taxes.
It and like-minded municipalities accepted the negative aspects of having businesses as neighbors, such as higher traffic and noise, in exchange for a lower tax burden. The Lynch plan penalizes these municipalities because it sends aid to municipalities that chose to pursue anti-business land-use policies, allowing them to have their cake and eat it too.
A better measure for targeting aid is a municipality’s average home price, as this gives greater weight to variables affecting property-tax base over which a municipality has less or no control, such as location and state infrastructure. And this measure would not act as a disincentive to prudent land-use policies.
There also is an inverse relationship between income and state aid. The more a municipality’s average household income exceeds the state average, the less state aid it receives, and vice-versa. If you accept the proposition that income and need are synonymous, this appears to target state aid where it is needed.
But household incomes vary between municipalities. Which means that, under the Lynch plan, low-income residents of high-income towns pay relatively higher property taxes than high-income residents of low-income towns. Which ironically is one of the criticisms of the state property tax, which the Lynch plan would repeal.
More importantly, income is largely a result of hard work and risk-taking. Why punish these behaviors? A municipality’s average household income is an unfair way to target state aid. And it is a significant step toward an income tax. It should not be part of a targeted aid formula.
Ed Mosca is a Manchester attorney and former chairman of that city’s Republican Party.

This article appears in the March 18 2005 issue of New Hampshire Business Review